Tax Deducted at Source or TDS was introduced to the sale of immovable properties in the year 2013 in their financial Bill wherein the sales consideration exceeds Rs. 50, 00,000. According to section 194 IA of the Income Tax Act, 1961, it has been made mandatory that all buyers of a sales transaction to deduct 1% Tax at the time the sales transaction is being carried out. The tax amount is then required to be deposited to the government account through bank branches that are authorized to do so.

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Is Tax Deducted at Source applicable on the sale of residential property?

TDS is applicable to every property except the agricultural property. Section 194 IA of the Income Tax Act provides that the buyers are responsible to make a payment of 1% of TDS to the government account if he is making a payment exceeding Rs. 50 Lakh to the seller of the property on the transaction of a residential property.

According to the Finance Act of 2019, the word consideration has been defined to include all the cost of purchasing the property such as club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges along with the amount decided for the transfer of the immovable property. The buyer is also liable to make the deduction of 1% even if the payments are made in installments and exceeds Rs. 50 lakhs.

After deducting 1% as TDS, the buyer is responsible to make the deposit of the same to the government account through an authorized bank within a period of 30 days from the month in which deducting of Tax Deducted at Source is done along with the Form 26QB and a statement in accordance with Rule 30(2A) of the Income Tax Rules.  The form is also required to be submitted within 30 days from the month in which deductions have been made according to Rule 31A (4A) of the Income Tax Rules.

The various steps that are involved in the payment of TDS are as under:

  1. You may make the online registration of the TDS payment by visiting tin-nsdl.com.
  2. Then you may click on the ‘Service’ tab and click the e-payment option.
  3. Then a new window may open showing different challans for the payment of TDS under different sections.
  4. Then you may proceed by clicking TDS on Property (Form 26QB) tab.

How much TDS is applicable on a property?

The buyers are required to deduct 1% of the total sales consideration as Tax Deducted at Source. The deduction is required to be made by the buyer and not the seller. The rate is 0.75% for those transactions that have been carried out between 14.05.2020 to 31.03.2021. The deduction may only be made if the consideration for the transaction exceeds Rs. 50 Lakhs. If the payment is made on an installment basis, then Tax Deducted at Source may be deducted on a monthly basis as well.

The term consideration has been defined according to the Union Budget of 2019 and includes various charges along with the sales consideration such as club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of the immovable property. This has been made applicable to those purchases that have taken place after September 2019. TDS is also paid on the entire tax amount.

The buyer may not be a TAN (Tax Deduction Account) number holder for making the payment on TDS. You may make the payment through the PAN card. The buyer is required to collect the PAN Card details of the seller as well for making the deduction otherwise the deduction is made at 20%. It is deducted at the time of the payment or while giving credit to the seller. After making the payment, the buyer is required to furnish the TDS certificate in form 16B to the seller which is made available within 10-15 days of depositing Tax Deducted at Source.

Some TDS provisions state that the payee can approach the income tax officer for the certificate in order to avail of lower or nil rates. However, there is no such provision for the Tax Deducted at Source relating to immovable property and the buyer is required mandatorily to deduct tax at source if the consideration exceeds Rs. 50 Lakhs.

Can I claim a refund on the TDS amount paid?

The individual that has made the financial declaration at the beginning of the year but did not make the investment equal to the declaration, then he is entitled to the TDS refund. The TDS refund can be obtained early if you file your income tax return soon.  You may claim the difference by filing your income tax return. You will be required to provide your bank account details, name of the bank, and Indian Financial System Code (IFSC) details for refund of the amount.

You may be required to fill the form 13 under section 197 of the Income Tax Act for availing income tax deductions. The TDS refund can be carried out in two ways. The first way is by declaring the income and approaching the Income Tax department for the refund of the amount. You may also file Form 15G with the bank for refunding the deduction. A TDS refund may be applied quite easily. The various steps for carrying out the TDS refund is listed below:

  • Visit the online portal of the online income tax portal
  • Login and download all the relevant forms for the TDS refund.
  • Enter all the relevant information, particulars, etc. and submit the form.
  • The Income Tax department verifies the same and then provides a refund directly to the bank account.

Conclusion

Summing up it is to be stated that TDS is an amount that is the tax that is paid on the income earned by a person. TDS is to be paid on the transaction of the property which has a consideration of Rs. 50 Lakhs under section 194 IA of the Income Tax Act at a rate of 1%. The amount needs to be made by the buyer through authorized banks to the government account. You are required to make the payment within 30 days of the sales transaction.

You are required to furnish certain forms for the same and can be made through the Income Tax portal. If the investment amount is less than the amount that has been declared at the beginning of the financial year, then a TDS refund may be availed by making an application and the amount will be credited to your bank directly.